India leans on Russia in energy race

New Delhi: A fresh battle for energy resources is about to break out, this time in Russia, where India, relying on its historical association with that country, believes it has a strategic advantage over main rival China unlike in Africa.

The region, Yamal-Nenets, located north-west of Siberia, accounts for nearly one-fifth of the world’s natural gas production and supplies 90% of demand in the country.

The Indian initiative is being led by state-owned companies, which may require an investment of between $1.5-1.7 billion (Rs 6,840-7,752 crore) for an opportunity in the Yamal peninsula that’s being offered by Russian firm OAO Novatek. India has lost out to China in the rush for energy assets in Africa because of its neighbour’s aggressive economic diplomacy.

“We may have the option either to market that LNG there or even bring it back to India," said a senior GAIL executive, who did not want to be identified. “The overall investment is expected to be in the region of around ₹ 7,000-8,000 crore. However, things are at a very preliminary stage."

Graphic: Ahmed Raza Khan/Mint

“We are evaluating the opportunity, which is in a very preliminary stage," confirmed another GAIL executive, who also did not want to be identified.

While a GAIL spokesperson declined to comment, Novatek did not respond to questions emailed by Mint on Monday. A.K. Balyan, managing director and chief executive of PLL, declined to comment. OVL officials could not be contacted.

“The Russian government has decided to develop the Yamal peninsula as it is very rich in gas. However, the gas business is still evolving. The exact contour of the project is yet undecided," said another official aware of the development, who also did not want to be identified.

An official in the ministry of external affairs said, “This is an ongoing process. There is discussion on signing or agreeing upon some kind of umbrella understanding in this sector. A discussion in this area is ongoing at the expert level," said the official on condition of anonymity.

India, which is heavily dependent on oil imports, has been scouting for new energy assets to meet growing demand as the trillion-dollar economy readies for a fresh growth push. At present, it is the world’s fifth largest oil importer, meeting 80% of its needs from overseas. It will become the third largest after the US and China before 2025, according to the International Energy Agency. According to the BP Statistical Review of World Energy, India’s primary energy consumption in 2009 was 469 million tonnes of oil equivalent, or 4.2% of global consumption.

In the case of Russia, India is looking to weave together these investments as part of anoverall bilateral agreement on energy. So far, specific energy deals have been struck that involved Indian investments in Russia. Now, India is looking at a comprehensive umbrella agreement for the energy sector.

“The new realities in India and Russia need to be understood by each other. Russians are at the suppliers’ end and we are among the buyers," said Deba Mohanty, an expert on Russia attached to the Observer Research Foundation think tank in New Delhi. “The challenge for India is to see how it can translate or encash relations based on defence ties to get dividends in other areas. Defence ties are a robust card to play to gain dividends in other areas."

India’s energy investments in Russia already include a 20% stake in the Sakhalin-1 hydrocarbon block through OVL and the 2008 buyout of UK’s Imperial Energy, which has operations in Russia.

Nord Imperial, a subsidiary of Imperial Energy, had been among the companies that submitted applications to bid for developing Russia’s Trebs and Titov oil deposits in the Arctic in September. However, its application was not cleared.

Indian investments in Russia, mainly in the hydrocarbon sector, total $4.25 billion, while Russian investments in India add up to $1 billion, predominantly in the telecom sector. Russian President Dmitry Medvedev is scheduled to visit India next month.

“It is a pretty good opportunity. However, the whole value is linked to marketing freedom. If that is available, it is certainly a very good proposition," said Anish De, chief executive at Mercados Asia, an energy consulting firm. “LNG is not as fungible as oil. Having a proprietary position in LNG is of much higher strategic value as compared to a proprietary position in oil."

India’s plan of receiving gas (or its equivalent in money) from the Sakhalin fields in Russia has been delayed as reported by Mint on 1 July.

“Russia is the world’s second largest supplier with proven reserves. It is now using its energy reserves as a strategic asset," said Mohanty. “Every country has a right to be protective about its strategic assets. Indian companies like Reliance and ONGC have shown interest in the Russian energy market. It may take a little more time, but I am sure they will be able to make inroads."

India’s relations with Russia won’t be at the cost of ties with the US, Mohanty said.

“The new Indian foreign policy, in keeping with the changed global geopolitical situation, is coming of age in that it is engaging all the major powers and with increasing confidence," Mohanty said. “India and Russia have no geostrategic conflict."